As many already know, RCW 60.30 went into effect on June 6, 2024. RCW 60.30, generally speaking, applies to private construction projects of twelve (12) units or more, caps retainage at five (5) percent maximum, and outlines the procedural mechanisms for contractors and suppliers to receive statutory interest at one (1) percent on the final payment and outstanding retainage due. RCW 60.30 does not apply to single-family residential construction of less than twelve (12) units.
One of the most basic questions is whether or not parties to a construction contract can waive these statutory requirements. The lawyerly answer is, of course, it depends. In general, where a statutorily created private right serves a public policy purpose, the persons or entities protected by the statute cannot waive the right.[1] And, where a contract is contrary to the terms and policy of an express legislative enactment, the contract is illegal and unenforceable.[2] Otherwise, however, statutory interests can be waived.[3] As a practical matter, RCW 60.30 has – as of the date of this blog post – not been litigated, and the legislative history does not necessarily articulate a clear public policy objective.[4] Therefore, it does not appear likely that a construction contract that purported to properly waive RCW 60.30’s provisions would be, on the whole, illegal and unenforceable, especially if the construction contract contained a severability provision.[5] The reality is, RCW 60.30 may, in fact, be waivable, but for those that want to take a more conservative approach, incorporating – selectively or otherwise – its provisions into your construction contracts may help to mitigate risk by assessing beforehand how the statutory obligations are handled.
RCW 60.30 implicates the contractual relationships and responsibilities between owners, general contractors, subcontractors, and suppliers of any tier. Between each of these parties, there is (hopefully) a written agreement in place. Depending on who drafted the contract, the relationship between the parties to the particular contract (Owner / General Contractor, General Contractor / Subcontractor, or Contractor / Supplier), and the relative bargaining strength of either party, each contract is likely drafted to give one party a slight (or not-so-slight) advantage over the other. In the event you consider incorporating RCW 60.30.010’s provisions into your contracts, consider the following:[6]
- Application to Single-Family Residential Construction of Less Than 12 Units.
As a counterpoint to waiving RCW 60. 30.010’s provisions, parties may wish to incorporate the statutory interest provisions and procedure applicable to all their private contracts, irrespective of whether the performance contemplates single-family construction of eleven units or less.[7] There is no legal issue in choosing to make RCW 60.30.010’s provisions a part of every contract one executes, even if all of your work is the construction of eleven single-family units or less per individual agreement. On the other hand, for those contractors that do some private single-family work of eleven units or less and some private work consisting of twelve or more single-family residential units and/or commercial work, custom contracts can be created with default provisions regarding payment and procedures for a particular scope of work – for example, a scope of work subject to RCW 60.30.010’s requirements – and an “opt-in” section for work that is not subject to RCW 60.30.010.[8] For contractors that only do private work consisting of commercial or twelve or more units of residential construction, the requirements of RCW 60.30.010 are applicable to your work; however, the extent to which you may or may not incorporate it into your contracts should be discussed with counsel.
- Retainage Amount.
The amount of retainage to be withheld by any owner or upper tier contractor should be clearly stated, as a percentage of the construction cost, in any construction contract. RCW 60.30.010 limits retainage to an amount equal to not more than five (5) percent.
- Notice.
RCW 60.30.010(3) requires notice from one party to the other that the performing party considers its work “complete.” The procedure for invoking a right to one (1) percent interest on a contractor’s or supplier’s final payment, which may include retainage, only begins to run from “receipt” of the notice, which is also not defined in the statute. Construction contracts should already have a section that defines how any notice should be delivered, and those provisions should be followed. If your construction contract does not detail how notice is to be provided, at a minimum the notice should be sent certified mail return receipt requested with an email copy sent to the appropriate other party project representative requesting acknowledgement of receipt of the notice.
- Procedure.
After notice has been given, under RCW 60.30.010(2), the triggering events for commencement of statutory interest requires (1) either completion of the work and acceptance, by the owner, under the contract for construction for which final payment is due or (2) a failure by the party receiving the notice to either accept their subcontractor’s or supplier’s work or identify work to be performed. One potential issue for general contractors is their early-completing subcontractors and suppliers whose work is complete before the project is complete. Those early-completing subcontractors and suppliers can provide notice that they have deemed their work is complete, and general contractors should be hesitant to accept their subcontractor’s or supplier’s work until after the owner has accepted it or, at the very least, general contractors should provide owners with an opportunity to accept their subcontractor’s and supplier’s work. The upshot is, without careful consideration of the statutory requirements and the typical payment provisions in the Owner / General Contractor agreement, general contractors may be left holding the proverbial bag for the statutory interest costs because there is no privity of contract between the subcontractor or supplier and the owner. General contractors need to pay particular attention to responsibility for potential statutory interest costs for early-completing subcontractors and suppliers and how the timeframes for their final payment and release of any retainage are tailored into the Owner / General Contractor agreement provisions for progress payments, payments on substantial completion, as well as final payment.
Per the statute, a contractor’s potential obligation to pay interest on the outstanding retainage portion, however, is conditioned upon the general contractor’s receipt of payment for that retainage from the owner, provided that the general contractor submitted the request to the owner within thirty (30) days from when it received the notice.[9] Accordingly, general contractors should immediately forward to the owner any subcontractor’s or supplier’s request to release retainage.
- Interest.
The statutory interest is one (1) percent per month.[10] This is simple interest amounting to twelve (12) percent per year. This is better than the average, historic stock market return of ten percent. To put this in perspective and by way of example, assuming an early-completing foundation subcontractor has provided notice that its work is complete before the project is complete and has requested final payment, as well as release of retainage in the total amount of $1M. Neither the upper tier contractor nor the owner accept the work or identify work yet to be performed, and the final payment and retainage is not paid for one year after interest began to accrue. In this scenario, the subcontractor would be entitled to $120,000 in interest – a solid rate of return, if you do not need immediate access to the money. The flip side of that is that upper tier contractors, hopefully, do not want to be spending that kind of money for interest, which could be easily-avoided by following the statutory process incorporated into the parties’ agreement or re-allocating the obligation for accrued interest that is the fault of the owner.
The creation of a clear contract, tailored to a construction professional’s particular needs, is a pro-active exercise in evaluating, assessing, and allocating risk between parties to a construction contract. Not only that, but a well-drafted agreement may simultaneously dissuade litigation and provide the bases for successful claims or a defense. ACS regularly assists its construction clients with custom solutions to their contracting needs, which may, after evaluation, include a wholesale restructuring of their existing documents or simply a review of their agreements currently in use to address possible shortcomings and new issues – like RCW 60.30 or case law – which inevitably change the contractual landscape from time-to-time. As former Secretary of Defense, Donald Rumsfeld, famously said, “There are known knowns, things we know that we know; and there are known unknowns, things that we know we don’t know. But there are also unknown unknowns, things we do not know we don’t know.” Contracts can be a bit like that – maybe you didn’t even know about RCW 60.30. Or, maybe you did, and you know you don’t know how to best incorporate it into your existing agreements. With regard to your construction contracts, let ACS help you identify and change contractual known unknowns and unknown unknowns into contractual known knowns, so you can go about continuing to do what you do best.
[1] Kelso Educ. Ass’n v. Kelso Sch. Dist. No. 453, 48 Wn. App. 743, 749, 740 P.2d 889 (1987).
[2] State v. Nw. Magnesite Co., 28 Wn.2d 1, 26, 182 P.2d 643 (1947) (citing to Restatement of the Law of Contracts, § 580 that provides: (1) Any bargain is illegal if either the formation or the performance thereof is prohibited by constitution or statute; (2) Legislative intent to prohibit the formation of a bargain, or an act essential for its performance, may be manifested by (a) express prohibition; (b) making the formation of the bargain or the performance thereof a crime; (c) imposing a penalty for the formation of the bargain or for doing an act that is essential for the performance thereof; (d) requiring a license, inspection, or something similar from persons making such bargains or doing acts essential for their performance; (e) other terms of a statute interpreted in the light of the purpose of its enactment).
[3] Matter of Estate of Petelle, 195 Wn.2d 661, 668, 462 P.3d 848 (2020).
[4] A statement in support of RCW 60.30 shows concern for small businesses and that higher retainage percentages limit these entities’ ability to take on new projects. See e.g., March 28, 2023, Washington Committee Report on Washington Senate Bill No. 5528.
[5] A severability clause is a contract provision that allows for the remainder of the contract to be enforceable if one or more of the contract’s terms is later found to be illegal or unenforceable.
[6] ACS has chosen to present RCW 60.30.010’s requirements out of statutory order.
[7] The legislature did not define single-family residential construction less than 12 units. Elsewhere in the Revised Code of Washington, a single-family residence is a structure maintained and used as a single dwelling unit, notwithstanding that a dwelling unit shares one or more walls with another dwelling unit, it shall be deemed a single-family residence if it has direct access to a street and shares neither heating facilities nor hot water equipment, nor any other essential facility or service, with any other dwelling unit. RCW 59.18.030(32) (precluding multi-family residential buildings with certain shared utilities); but see RCW 84.36.383(13)(defining residence to include a single-family dwelling unit whether such unit be separate or part of a multiunit dwelling). Even though there are multiple interpretations as to what single-family residential units may be, it is likely this would be construed broadly to encompass any building configuration of eleven single-family residential units or less since the legislature is assumed to mean exactly what it says. See Univ. of Washington v. City of Seattle, 188 Wn.2d 823, 832, 399 P.3d 519 (2017).
[8] Or vice-versa.
[9] RCW 60.30.010(4). While this is a statutory right, arguably it should be incorporated into construction professionals’ agreements since it serves as a reminder of an upper tier contractor’s obligations necessary to preserve a potential key defense.
[10] RCW 60.30.010(2).